Family Tax Splitting

[Wilber]

Wilbur, in Alberta the support payer must provide, at a minimum, a copy of their T4 at the end of the year. If you adjust how taxes will be collected, it would have to be reflected in some tax document that would then be used to determine changes in support payments.

The minute tax-splitting is allowed, would it not enshrine in law that the family is now treated as a single income unit? This would affect all income-related payments you can be sure.

Why would it? Your T4 gives your individual gross earnings not your taxable earnings. That won't change. T4's are not going to be issued on a basis of family income, that would require both spouses employers to share income and tax information to determine how much tax to deduct from your paychecks. I doubt that would be legal. Taxable earnings already vary from person to person depending on deductions and taxable benefits. Why would income splitting for tax purposes be different? I'm not saying it can't turn out that way but it doesn't make sense to me.

Can you show me where the payers tax situation is already a consideration when a judge determines payments? If they don't now, why would they in the future? Tax laws change all the time, I don't think judges read the tax code every time they make a judgment.

You are saying a change in tax law is going to automatically cause a change in civil law. That would be the exception rather than the rule and a stretch at this point.

[Renegade]

I don't think I am missing the point at all. As far as I know the new legislation just concerns how income will be taxed. You are reading everything else into it. I think that is a stretch at this point. If you can show me where this legislation refers to anything other than how income will be reported for taxation, I would be interested in seeing it. I'm sure you will still report your income separately, just allowed to split it for tax purposes. Family's are already fiscal units but not for tax purposes. Individuals are responsible for support, not family's. I don't see this changing because of the way income is taxed but am quite willing to admit I could be proven wrong.

Wilber, yes I agree the new legislation just concerns how income will be taxed. The reason everything else is being read into it is based upon your original statement, not on the legislation. Your statement was:

That being said I do think taxing household incomes across the board rather than individual incomes would be more fair for everyone.

Given that you think that taxing household incomes accross the board is fair, I'd like to understand your perspective:

1. If it is fair to use household income as the basis for income taxes, why does that same logic not apply to other areas where income is used as the criterion.

2. Are you advocating that people have the choice of either filing as individuals or households based upon which is most in their advantage?

3. Would you see a different set of tax rates depending upon whether income tax was applied at an individual level or a household level?

4. What constitutes a household? Is it based upon the people living in the same physical residence? Is it based upon their relationship by marriage or blood? Are two siblings living toghether a household?

Remember, I'm asking this clarification based upon your perspective on what you consider "fair", not based upon what the legislation proposes.

[Wilber]

I was only trying to say if couples are going to be allowed to income split it would be more fair if all households had the option of being taxed in such a manner rather than just applying it to those on pension incomes.

As far as what constitutes a household, I would say what currently applies. Two people cohabiting in a married or common law relationship. Perhaps other criteria could be added such as the aforementioned example of two siblings who have lived together all their lives.

As far as tax rates go, the government is going to get their pound of flesh one way or another. Is this fair? I don't know, fairer to some than others just like every other tax. Guess it depends on where you fit in the system. I'm sure not complaining, the bulk of our income comes from my pension.

[August1991]

It looks like the Tories may well follow through on this.

The Conservative government is looking at a radical restructuring of the tax system that would allow couples to reduce what they pay by averaging out their income, says a government source.

But introducing income splitting — something Finance Minister Jim Flaherty could touch on as early as Thursday when he delivers his annual economic update — is likely to set off sharp criticism from groups that consider it unfair to single Canadians and a disincentive to women working outside the home.

...

Doing so would be expensive — economists estimate it would cost Ottawa about $5 billion a year — but it would fit with Flaherty's personal ambition to establish a reputation as Canada's tax-fighting finance minister. Ottawa had a $13 billion surplus last year.

Toronto Star

I am intrigued that the Toronto Star got this leak.

As to the proposal, it makes sense for Tory voters. I'm well past trying to find any rhyme or reason to our tax system.

[Jerry J. Fortin]

I don't think I am missing the point at all. As far as I know the new legislation just concerns how income will be taxed. You are reading everything else into it. I think that is a stretch at this point. If you can show me where this legislation refers to anything other than how income will be reported for taxation, I would be interested in seeing it. I'm sure you will still report your income separately, just allowed to split it for tax purposes. Family's are already fiscal units but not for tax purposes. Individuals are responsible for support, not family's. I don't see this changing because of the way income is taxed but am quite willing to admit I could be proven wrong.

Not about to get divorced voluntarily Jerry. After 37 years, I'm too old to be retrained and too lazy to train someone new.

HA ! Good one! Now what would you do I you caught her folling around? I did, and I got to pay for her transgressions. I signed over the house and walked away with two bags of clothes and an old car. She got $1200.00 a month in 1992, and I am still paying $700.00 a month now. From my perspective the system sucks!

[Higgly]

Single parents will lose. Widowed seniors will lose. Single people will lose. Double income families may see a small benefit. The wealthy who can afford to have one spouse stay home to look after the kids and the house will be the major winners. The Tory's just appear to be looking after their own.

Lowering the tax rate would be much better for everyone, IMHO. This, like the posturing in Hanoi, appears to be mainly electioneering.

[scribblet]

Many, many seniors will gain from it, and not a few couples. I see nothing wrong with giving couples a break, and would not deny it to some simply because not all will benefit from it. In other words, if I can't benefit, no one else should - very selfish attitude. It would be nice if down the road all income taxes can be reduced, but baby steps first. A flat tax would actually solve all of this.

All income splitting does is shift income from higher tax bracket family members to lower tax bracket family members. Due to the progressive nature of Canada's tax system (i.e. marginal tax rates increase as taxable income increases), such a shift effectively allows a greater portion of the family income to be taxed at a lower rate, thus allowing for tax savings, and a corresponding higher level of after-tax income for the individual and/or family.

Thew degree of benefit will vary, but reading anything else into it such as sexism, keeping the woman in the kitchen type of thing, is nonsense.

[Higgly]

Many, many seniors will gain from it, and not a few couples. I see nothing wrong with giving couples a break, and would not deny it to some simply because not all will benefit from it. In other words, if I can't benefit, no one else should - very selfish attitude.

Unless the government is willing to accept less revenue, those who do not qualify will pay for those who do. That's not selfishness, just self-preservation. This sets up a discriminatory tax regime in the interests of social engineering. A tax reduction that can benefit everyone would be a more even-handed approach IMHO.

[Riverwind]

This sets up a discriminatory tax regime in the interests of social engineering.

The system already discriminates against families with stay at home parents in numerous ways (child tax benefit, GST credit, childcare deductions). This change would address that discrimination.

[August1991]

This idea of income tax splitting reminds me of how we treat home-buyers.

A renter pays rent with after tax income. A homeowner receives the benefit of housing tax-free.

Let me illustrate: You have $300,000 and you buy a house in which you live. Or, you have $300,000 which you invest at 10% and use the $30,000 investment income to rent a house. Except you must first pay income tax on the $30,000 interest income. Once income tax is paid, you'll get less of a rental house. In short, the tax system encourages you to buy a house rather than invest and then rent.

IOW, our tax system creates an incentive for homeownership over renting. (In the US, this is worse. Mortgage payments are tax deductible. Americans are encouraged to borrow to buy a house.)

If any Canadian politician suggested that homeowners should include the imputed value of housing services in their taxable income, the politician would get no more than a handful of votes. Yet the current tax regime is discriminatory against renters. Not surprisingly, homeowners make up a majority of voters.

This tax splitting proposal has a similar slant to it. Just as we give a tax break to homeowners, we would be giving a tax break to married couples. To a conservative, the bedrock of a civilized society is family and home ownership.

Anyway, the real test is whether it's politically popular. I think it might be. Married people are more likely to vote than single people and married people are more likely to vote Conservative.

----

I have rethought a point.

I argued above in this thread that imposing a higher marginal tax on a family with a stay-at-home spouse was a way to correct for the fact that housework amounts to working under the table, tax free. For example, if a man hires a maid to do his housework, she would have to declare that income and pay income tax. (The man could not declare the payments as tax deductions.) If the man marries the maid, and continues to pay his new wife, the payments are tax free.

The Tory $100/month child care payment adds insult to injury to this situation. I'm surprised the Liberals/NDP didn't use this argument to defend their State Child Care proposal. The tax system creates an incentive for a mother to stay at home. State Child care partly redresses the balance.

This sets up a discriminatory tax regime in the interests of social engineering. A tax reduction that can benefit everyone would be a more even-handed approach IMHO.

Higgly, you have touched on the key issue.

This is not about fairness (because truly there is no fairness in our tax system). The criteria should be the 'social engineering' aspect of the proposal. Specifically, how many people are going to get married (or stay married) merely to take advantage of the tax benefit? Is there a cost to society of people doing something they otherwise would not merely to gain a tax benefit?

In the Soviet Union, it was common for divorced couples to continue living together because there were no apartments available. We could have similar family arrangements but for tax reasons.

[Jerry J. Fortin]

I favour income splitting because I would benefit from it. I make too much money to get any child tax credit dollars, and my wife does not work. My support payments for my first wife and family are not accounted for in my income qualifications according to the feds. So tax splitting is good for me!

[Higgly]

I see this morning that Flaherty seems to be backing away from the idea of general tax splitting. I guess he read my post .

[cybercoma]

If taxes are too high and we want to reduce them in an objectively fair manner, it makes more sense to raise the tax exemption on individuals. People whose income is below the exemption are able to sell or transfer their exemption credit difference to whoever they want. Period. You decide what that exemption amount will be based on the violent socialist philosophy of your choice.

Absolutely! :clapping hands smiley:

[Hydraboss]

I favour income splitting because I would benefit from it. I make too much money to get any child tax credit dollars, and my wife does not work. My support payments for my first wife and family are not accounted for in my income qualifications according to the feds. So tax splitting is good for me!

This is what I was talking about with regards to child support payments. If your T4 says you make $70,000/year, then your payments are based on that amount. Now, if you could transfer half of that to your non-working spouse, your payments could be based on $35,000. This may not be the case if the courts only consider your T4, but what if they don't? How many payment receivers would get less? I'm not against this necessarily, but it may be an angle that has not been considered.

[Saturn]

Income-splitting is nothing but vote-buying.

It discriminates against single people.

It discriminates against married people both of whom work. Why should I pay more taxes than somebody who receives the same pay for the same work just because my spouse works and his spouse chooses not to work?

It creates disincentives to work by rewarding people who don't work. Disincentives to work are the last thing our economy needs. Unemployment is at the lowest levels in 30 years and the labour shortage will only worsen as the babyboom generation retires. You can't give people incentives not to work when you are facing labour shortages. Canada's economy is an open one and don't expect wages to go up and pull people back to the labour market. Unfilled jobs will simply leak out of the contry instead.

Finally, it is supposed to cost only $5 billion/year. Guess what? That doesn't include tax revenue lost due to behavioural changes. Even if a small number of people decide not to work or to work less as a result of this ill-conceived policy, the cost will balloon significanly.

Furthermore, you cannot give away $5 billion in revenue to special, yet large interest groups, when you are paying upwards of $20 billion per year in interest on your huge debt. In this situation, tax cuts are nothing but a tax deferral+large interest cost.

[Saturn]

This sets up a discriminatory tax regime in the interests of social engineering.

The system already discriminates against families with stay at home parents in numerous ways (child tax benefit, GST credit, childcare deductions). This change would address that discrimination.

The current system discriminates against working parents, not stay-at-home parents.

The child tax benefit and the GST credit are both based on family income. The clawbacks on both are very sharp. Only families with a stay-at-home parent can possibly benefit from those.

The universal child benefit is taxed at the lower-income spouse's level. This obviously greatly favours families with a stay-at-home parent.

This change will only make the discrimination against families without a stay-at-home parent even worse.

[Charles Anthony]

Income-splitting is nothing but vote-buying.

I agree. I think that is the only rhyme or reason.

If taxes are too high and we want to reduce them in an objectively fair manner, it makes more sense to raise the tax exemption on individuals.

Absolutely! :clapping hands smiley:

I still believe that my proposal is more fair than income-splitting for "couples" but it is only under the caveat that we want to consider "household" income instead of individual income. However, my proposal is still too ridiculously complicated. Filling out income tax forms is stupid enough.

I am starting to see the light and I think it is better to just get rid of income tax altogether. Keep it simple.

[Riverwind]

The child tax benefit and the GST credit are both based on family income. The clawbacks on both are very sharp. Only families with a stay-at-home parent can possibly benefit from those.

The point is the clawbacks are based on _family_ income. If the gov't insists on using family income for calculating benefits then it should use family income for calculating income tax payable. The technically fairest way to do this would require spouses to pool their income and pay tax as if they are a single person. However, such a move is a political non-starter so the gov't is talking about leveling the playing field by allowing income splitting.

[Higgly]

The system already discriminates against families with stay at home parents in numerous ways (child tax benefit, GST credit, childcare deductions). This change would address that discrimination.

Why not address it by dealing with the faulty legislation? This is just a piling-on foul. Ten yards!

[Borg]

Typical Canadians - arguing over whether it is fair. Does it benefit all?

Nope.

And taxes are never applied fairly and equitably.

You make it you pay it - period.

So as per normal the potential to allow at least a portion of folks to get a tax break will be held up by all the ninnies who cry the sky is falling. That money goes back into the economy.

You want a fair tax - go flat rate - works in Hong Kong.

Oh, wait a minute I am sure someone will point out there are disadvantaged who will suffer. For whatever reason.

Therefore the only truly fair tax IS NO TAX.

Take it all home and spend it as you see fit. Put a consumer tax on everything. The more you buy the more you pay tax.

I am sure there will be a reason to discourage this as well.

Perhaps some other under-achiever - or over-achiever will find fault.

In the end any tax system will piss off someone and make yet another happy.

Having lived where there was no tax at all I can tell you this - taxes are business killers. And sooner or later taxes will cause even more to leave this country I fondly call Canuckleland.

It happens on a daily basis.

Borg

[Saturn]

The child tax benefit and the GST credit are both based on family income. The clawbacks on both are very sharp. Only families with a stay-at-home parent can possibly benefit from those.

The point is the clawbacks are based on _family_ income. If the gov't insists on using family income for calculating benefits then it should use family income for calculating income tax payable. The technically fairest way to do this would require spouses to pool their income and pay tax as if they are a single person. However, such a move is a political non-starter so the gov't is talking about leveling the playing field by allowing income splitting.

The government doesn't insist on calculating benefits on family income - the government is losing money by doing it this way, so it's not exactly a benefit for the gov't. The reason it's done this way is to give poor families a tax break and help them make ends meet. Since families with 1 income earner are more likely to fall into this "poor" category, they are also more likely to benefit from benefits. This is a form of income-splitting already.

There are also numerous tax credits that allow for income-splitting in the current system - such as the spousal and age amounts. Spousal RRSPs are designed specifically for income-splitting. One-income couples already receive a preferential tax treatment compared to two-income couples in the current system. Going any further that this makes no sense. It is neither fair, nor is it beneficial for our economy. In other words it's a lose-lose situation for Canada.

[Riverwind]

The government doesn't insist on calculating benefits on family income - the government is losing money by doing it this way, so it's not exactly a benefit for the gov't.

You have it backwards. The gov't does not want a stay-at-home spouse of someone making 100K/year collecting benefits intended to help the truely poor. The rules are designed to ensure the gov't pays benefits to fewer benefits. IOW - people would qualify for more benefits if the lived together but were not married or common law.

There are also numerous tax credits that allow for income-splitting in the current system - such as the spousal and age amounts. Spousal RRSPs are designed specifically for income-splitting.

This is a minor benefit that only has an effect if the couples stay together until retirement.

One-income couples already receive a preferential tax treatment compared to two-income couples in the current system.

This statement is complely false. A couple with one person making 60K will pay $3000 _more_ in tax per year than a couple where each person makes 30K. Yet both families will qualify for exactly the same benefits because thier family income is 60K. Where do you get this bizarre idea that the system currently gives preferential tax treatment to one income families?

[jdobbin]

Can someone explain the pluses and minuses on income splitting?

I'd like to know if it is truly good for couples, what it will cost in federal finances and the like.

I am having a hard time assessing it from everything I've heard so far.

[watching&waiting]

It really depends on what the incomes are. If bothe spouses make over $60,000.00 then there would be little difference for them. But if one spouse has little or know income and the other has high income then yes it will benefit that couple. The biggest case would be the family with $80,000.00 income with the wife a stay at home mom. She could declare $40,000 and so could he. This way they would pay tax at a lower tax rate plus the wife would also have her basic personal exemption. The husband would lose the wife as a dependent, but the gain on her basic exemption would be greater then that. The lower you can drop your tax rate to the more it would benefit, but yes there would be a point where it would still be better to make more money if possible. If your wife works and is in a low paying job then it still will be ok. But if both work and make pretty much the same then it really is not a saving.

I would call this a tax benefit for the mid to lower income earners and stay at home moms families.

[Saturn]

The government doesn't insist on calculating benefits on family income - the government is losing money by doing it this way, so it's not exactly a benefit for the gov't.

You have it backwards. The gov't does not want a stay-at-home spouse of someone making 100K/year collecting benefits intended to help the truely poor. The rules are designed to ensure the gov't pays benefits to fewer benefits. IOW - people would qualify for more benefits if the lived together but were not married or common law.

There are also numerous tax credits that allow for income-splitting in the current system - such as the spousal and age amounts. Spousal RRSPs are designed specifically for income-splitting.

This is a minor benefit that only has an effect if the couples stay together until retirement.

One-income couples already receive a preferential tax treatment compared to two-income couples in the current system.

This statement is complely false. A couple with one person making 60K will pay $3000 _more_ in tax per year than a couple where each person makes 30K. Yet both families will qualify for exactly the same benefits because thier family income is 60K. Where do you get this bizarre idea that the system currently gives preferential tax treatment to one income families?

Couples don't work. Individuals do. Your employer will not pay you more because you have a spouse who doesn't work. Your employer will pay you for YOUR work. Because your work is the same whether you are married or not and whether your spouse works or not. If you can't expect your employer to give you extra benefits because your have a spouse who doesn't work, you can't expect the government to reward you for having a non-working spouse either.

You can't treat couples with one worker the same way as couples with two workers for the obvious reason that the second type of couple WORKS TWICE AS MUCH AS (or at least more than) the first couple. Salaries are paid in exchange for WORK, not for sitting at home.

The current system gives preferential treatment to one income families because 2-income families provide twice the work but pay more than twice the taxes. For example:

Tom, Bill and Jane are work the same jobs at company A and receive $35K each on a 40hr workweek. Bill and Jane are married and pay $4,000 in taxes each. Tom has a spouse who does not work and Tom gets the spousal tax credit worth $1800, so Tom's family pays $2,200 in taxes. Bill and Jane pay $8,000 in taxes. $8,000=$2,200x3.6. So Bill and Jane provide 2 times the work, earn 2 times the income, and pay 3.6 times the taxes. The current system is punishing them for working more.